Insurance bond
Encyclopedia
An insurance bond is a single premium life assurance policy for the purposes of investment
.
Due to tax law
s they are a common form of investment in the UK
and some offshore
centres.
Traditionally insurance bonds were with-profits policies
and were often called with-profit(s) bonds. Since the introduction of unitised insurance fund
s they have often been marketed as unit-linked bonds or investment bonds.
Useful features of Bonds for tax planning scenarios include the tax deferred status, the ability to write the investment in trust and reduce the inheritance tax liability on an estate, and exclusive access to expensive investment links like guaranteed or protected profits funds are to name a few. Bonds can provide income or growth and when income is required there are now bonds that can offer a set minimum guaranteed income for life of the plan holder.
For UK Financial Advisers, the Financial Services Authority is placing increasing focus on what wrapper is being recommended. Advisers must be able to demonstrate they have used a robust process when selecting a bond or collective.
market in offering a wide choice of unit-linked investment funds. Geographic and themed funds for almost every sector are available.
One innovation from the insurers is the distribution fund introduced by Sun Life in 1979. A distribution fund is designed to provide a regular rising income for investors. This is achieved by carefully balancing income generating assets such as corporate bond
s and/or property with equities. The equity element provides some growth and the other assets the income. Since 2000 distribution bonds have been very popular and have provided another option to with-profit bonds as the low risk investment of choice in the UK.
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
.
Due to tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...
s they are a common form of investment in the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and some offshore
Offshore investment
Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are a commonly accepted solution to reducing tax burdens levied in most countries to both large and small scale investors alike...
centres.
Traditionally insurance bonds were with-profits policies
With-profits policy
A with-profits policy or participating policy is an insurance contract that participates in the profits of a life insurance company. The company is often a mutual life insurance company, or had been one when it began its with-profits product line...
and were often called with-profit(s) bonds. Since the introduction of unitised insurance fund
Unitised insurance fund
Unitised insurance funds or unit-linked insurance funds are a form of collective investment offered through life assurance policies.An insurance company's contract may offer a choice of unit-linked funds to invest in. Insurers that offer these contracts are mainly found in the UK and British Isles...
s they have often been marketed as unit-linked bonds or investment bonds.
Why invest in an insurance bond?
The decision of which 'wrapper' to place funds within (i.e. onshore bond, offshore bond or collective) can be complex and is based upon the tax position of the investor, the treatment of each wrapper, the likely growth and investment term.Useful features of Bonds for tax planning scenarios include the tax deferred status, the ability to write the investment in trust and reduce the inheritance tax liability on an estate, and exclusive access to expensive investment links like guaranteed or protected profits funds are to name a few. Bonds can provide income or growth and when income is required there are now bonds that can offer a set minimum guaranteed income for life of the plan holder.
For UK Financial Advisers, the Financial Services Authority is placing increasing focus on what wrapper is being recommended. Advisers must be able to demonstrate they have used a robust process when selecting a bond or collective.
Range of investment funds
Traditionally investment bonds only invested in the with-profit fund of the insurance company. However, since the late 1970s the insurers have tried to compete directly with the unit trustUnit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
market in offering a wide choice of unit-linked investment funds. Geographic and themed funds for almost every sector are available.
One innovation from the insurers is the distribution fund introduced by Sun Life in 1979. A distribution fund is designed to provide a regular rising income for investors. This is achieved by carefully balancing income generating assets such as corporate bond
Corporate bond
A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date...
s and/or property with equities. The equity element provides some growth and the other assets the income. Since 2000 distribution bonds have been very popular and have provided another option to with-profit bonds as the low risk investment of choice in the UK.
See also
- Unit Trusts
- Collective Investment SchemeCollective investment schemeA collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
- Life assurance
- InvestmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
- With-profits policiesWith-profits policyA with-profits policy or participating policy is an insurance contract that participates in the profits of a life insurance company. The company is often a mutual life insurance company, or had been one when it began its with-profits product line...
- Unitised insurance fundUnitised insurance fundUnitised insurance funds or unit-linked insurance funds are a form of collective investment offered through life assurance policies.An insurance company's contract may offer a choice of unit-linked funds to invest in. Insurers that offer these contracts are mainly found in the UK and British Isles...
s
External links
- http://www.investopedia.com/articles/pf/05/SinglePremLife.asp
- Insurance Bonds in Australia